Three years ago, Warren Buffett gave each of his kids $1 billion to give away — suddenly thrusting them into the philanthropic elite. Here's what they learned.

By
Jeff Bailey

For all the talk of how Warren Buffett is a normal, aw-shucks Midwestern guy, we know he is not just like us. We don't play bridge with Bill Gates. We may get calls asking for capital infusions, but they're from our kids, not from GE and Goldman. And these days, we certainly don't get 10% dividends on our stocks.

But ask Buffett about his kids — Susie, 56, an Omaha knitting-shop owner; Howie, 54, an Illinois farmer; and Peter, 51, a New York-based new-age musician — and he turns into your typical, gushing dad. "All three are smart. They have good judgment," he says. "They're just very decent human beings."

So decent, he thinks, that three years ago, when he pledged $30 billion in Class B Berkshire Hathaway stock to the Bill & Melinda Gates Foundation, he also promised each of his children $1 billion in shares for their charitable foundations. (All four foundations are receiving their stock grants in annual installments, with the remainder to be paid out upon his death.)

The gifts were by far the largest the Buffett kids had ever received — and ever expect to receive — from their father. He had made clear long ago that nearly all of his fortune would be going to charity. In recent years, each of his children had received $1 million on every fifth birthday — though that practice appears to have ended after three big birthdays for Susie and two for each of her brothers. (Of the $1 million extra his sister got, Peter says, "Who's going to complain?") According to Peter, "the largest thing that came our way" was $10 million that they were each left by their mother, also named Susie, who died in 2004. "They're comfortable," says Warren Buffett, "but they don't have tons of money."

In a letter that accompanied his pledges to them, Buffett wrote, "I consider myself lucky to have three children who want to spend much of their time and energy working on projects that will benefit others." That set out his expectation — that they will personally manage the assets and aggressively direct them toward their chosen causes. "Anyone can go around and get a hospital wing named after them," Buffett says.

Buffett tells Fast Company that one of the reasons he is giving these gifts is because he doubts he'd be skilled at philanthropy himself. "I don't think being able to allocate capital means you're good at anything else," he says. He offers a metaphor to illustrate how he thinks about financial investing versus philanthropic investing. When evaluating whether to buy a stock, he says, he'll wait months or even years until he feels comfortable "swinging at easy pitches." But in philanthropy, "you're really trying to swing at balls other people have been missing," he says. Plus, "the data's kind of fuzzy."

Warren Buffett doubts he'd be skilled at philanthropy: "I don't think being able to allocate capital means you're good at anything else."

Buffett's gifts propelled his kids' small foundations into the elite of philanthropy, immediately endowing them with new prestige and influence, but also introducing added risk. "You get a lot of people who have big hearts but don't have business skills," says Trevor Neilson, president of the Global Philanthropy Group. "That leads to a lot of ineffective nonprofits."

Newer foundations tend to give to those who ask, rather than seek out the projects that need the funding most. They end up giving to too many groups — "a thousand little checks to people who can all feel the love," Neilson says — resulting in effectiveness for none. And they're lax about monitoring the work of those groups, in part because they don't know the groups well and in part because most foundations' small staffs — none of the Buffett kids' organizations have more than a handful of employees — typically don't have the resources.

Three years after they began receiving their gifts, all three Buffetts say they have struggled against those temptations. And all three seem relieved that they've been asked to manage just one-thirtieth of what their father gave to the Gates Foundation, both because the bulk of the spotlight is not on them — "I always think of us as the farm team for Gates," Peter says — and because it's a lot of work just to give away tens of millions of dollars a year.

Yet they've also thrown themselves into their newfound roles. Susie considers it her full-time job, and her foundation pays her a $100,000 annual salary. (Howie gets some income from farming; Peter has his earnings from music, while his wife, Jennifer, who is president of their foundation, draws a $148,000 salary.) Each of them has carved out an area of specialty where they think they can have a huge effect. (Dad suggested they specialize.) To borrow their father's baseball metaphor, they've all missed a few pitches. But like many other philanthropists, they're learning as they go — and each of them shared one major lesson with Fast Company.

Give Where You Know

Howie Buffett, the Howard G. Buffett Foundation

It's harvest time in central Illinois, and I'm riding shotgun in Howie Buffett's John Deere 9560, with U2 blasting from the big green combine's stereo. As we mow down cornstalks and spit out golden kernels, Howie tells me about how, in his foundation's early days, he set out to save endangered cheetahs. He had seen some on safari in Africa, bought some land in South Africa, and set up a cheetah reserve (cost: $7 million).

Three years ago, around the time his dad announced his big gift, a cheetah at the reserve clamped down on Howie's right forearm, leaving a nasty puncture wound. Reason enough to give up on cheetahs. But Howie had already started wondering whether a private reserve was really the best way to help the wildlife. He began doubting his spending patterns, and so did his father. "He asked me some tough questions," Howie says.

On one trip to Africa, Howie had an epiphany. Seeing the stunning poverty in the communities surrounding one wildlife reserve, he turned to his son, Howie Jr., and said that he realized he couldn't keep investing in conservation "without levels of human needs being satisfied first." He then decided that he could be most effective by investing in one of the fields he knows best: agriculture. "When I talk to a farmer in Mozambique, I get my hands in the dirt," says Howie, who grows corn and soybeans on his spread outside the town of Pana, Illinois. "Farmers all over the world are the same. We care about the land."

In partnership with the Gates Foundation, Howie started by funding crop research into drought-resistant maize. His hope was that 21st-century genetic technology would help lift African farmers out of what he describes as a 19th-century agrarian existence. But even miracle corn wouldn't be enough to solve the problems of those farmers in Africa and Latin America who don't have the basic tools and skills that American farmers have used for decades. So, for instance, he is funding a $1.6 million initiative to train subsistence farmers in northern Ghana in soil-management techniques. And a similar $20 million, three-year program in Central America will teach farmers low-tech methods that will enable them to diversify their crops and reduce spoilage after harvest.

It turns out that Howie knew farming, but he also didn't, so he's absorbing lessons from those who have been in the agricultural-aid field for much longer. One of the things he found out from the farmers was that they were often vexed by unreliable water supplies. So Howie organized a meeting in Omaha, inviting leaders from various not-for-profits, and shared his vision for a program that sounded remarkably like the Republican Party's 2008 "drill, baby, drill" rallying cry, except he was talking about wells for water.

After he sat down, the gathered experts started up. This was nothing new, they told him. People have been trying to tackle the water problem for decades, and myriad complications have stymied them repeatedly, from tribal, bureaucratic, and boundary disputes over water rights to poor pumping equipment.

Which somehow only emboldened Howie, perhaps because he knows that a farmer can't be a farmer without a reliable water supply. He agreed to fund a major set of projects to address those persistent complications; it could cost his foundation nearly $150 million in the end. And he expressed some measure of relief at how well the meeting had gone: "I'm really lucky," he said, "that you guys didn't just laugh at me."

Learn the Word "No" ... and Then Learn It Again

Not long after Warren Buffett announced the gifts to his children's foundations, a friend of Peter Buffett's said, "Peter, let me put it to you in simple terms: You're the hot girl who walks into the party with big boobs."

In the months after the announcement, Peter and his wife, Jennifer, who works full-time as president of their NoVo Foundation, learned how true that was. Suddenly, there were tons of people knocking on their door — especially those from Milwaukee, where the couple had lived until 2006, and those interested in Native American causes, which had previously been one of the focal points of their NoVo Foundation's giving. "After the increase, we had people calling us and saying, 'Can we get on a plane and come see you?' " Jennifer recalls. "No."

"No" is especially significant to Peter and Jennifer because it's a common thread for one of the focuses of their giving: helping adolescent girls in developing countries, who often don't feel empowered to use that word and find themselves the victims of inequality. The cause is personal for Jennifer, who says her father paid for a brother's college education but declined to pay for hers.

NoVo is providing $60 million over four years toward Girl Effect, a project administered and cofunded by the Nike Foundation, which builds on research suggesting that saying no to early marriage and unsafe sex (thereby lessening HIV exposure) and yes to education will have an outsize effect on economic growth and sustainable development. NoVo is also funding a five-year, $15 million program in West Africa to prevent violence against girls and women. "The world over, give a guy money and it goes to drinking, gambling, and women," Peter says. "When you give a woman money, it goes to feeding, clothing, helping people."

Having a clearly defined mission has allowed Peter and Jennifer a polite out when some cold callers come — "You can say, 'That sounds good, but that's not what we do,' " Jennifer says. But another problem that has cropped up is that those seeking grants are unlikely to say no to an occasional mediocre idea from Peter. Last year, a group familiar with NoVo's interest in preventing violence against women approached him about funding a campaign around the 2010 World Cup in South Africa. The idea was to use international soccer stars to speak out on the issue. At one meeting, Peter suggested off-the-cuff that the campaign incorporate some mass text messaging to World Cup fans. "I couldn't tell if they really liked it," he says. He screws up his face into a mock sincere grin and cries out, " 'Brilliant!' "

Peter admits that he is still not the best naysayer. One day late last year, former Irish president Mary Robinson, who heads her own human-rights advocacy group, visited NoVo's New York offices. She had been invited as a "thought leader," which is code in the not-for-profit world for "don't use this meeting to ask for money." But within minutes, Robinson was disarmingly stammering through a request for funding: "What I would be interested to know ... if you would be receptive to ... it would be very helpful ... if we could make a pitch for support during 2009 and 2010."

Surprised, Peter made a wan effort at deflecting her. "A billion dollars is a lot of money," he said, "but it isn't going to solve the world's problems." As the session continued, though, his resolve appeared to weaken. He even seemed a little starstruck. "I have to be honest," he told her. "It's so strange to be talking to someone like you, who has done so much. If we can find a way to partner that would be great." Robinson took her purse, put her glasses back on, and gracefully exited.

"How did that happen?" Peter wondered after Robinson left, laughing at how artfully he was worked over. Later, Jennifer reminded him of their friend's long-ago hot-girl comment, and then told me, "I'm the 'no' person."

Look for Needs, Not Wishes

Warren Buffett's gift roughly quintupled the amount of grant money that daughter Susie's Sherwood Foundation — which focuses on public education in Omaha, Nebraska — gives away every year. With her small staff overwhelmed and wondering just how they were going to get more than $50 million out the door annually, Susie had what she now acknowledges was not her brightest idea: She asked the entire Omaha school system for wish lists.

Her last name might as well have been Claus — and everyone was telling her they'd been very, very good. The most audacious request came from a principal who wanted a new wing for his school (estimated cost: $8.5 million). One school got $168,400 for musical education and instruments, plus $103,950 for audio-recording equipment. Another received $121,256 for new bleachers. Oh, and the principal who asked for the new wing? He did get $1,031,472.

It certainly felt good to be able to say yes and yes and yes and yes. But the approach was scattershot and didn't effect real and profound change in public education. "We did them to get our feet wet," says Susie, a product of Omaha's Central High School. "Now we're thinking long term and deeper."

Most of the educational projects that Sherwood is now funding are systemic. For instance, it is spending $8 million to modernize all 83 school libraries in Omaha; go into one of the renovated facilities and "you'd think you were walking into a Barnes & Noble," says Omaha schools superintendent John Mackiel.

Many of the projects view education holistically — it's not just about when the kids are in school or what they learn from books — and address often-overlooked needs. For instance, the school district is receiving about $300,000 a year for an emergency fund to help the poorest students and their families address critical needs, whether it's paying a long-overdue electric bill or buying new winter coats. Sherwood has also committed to pay college tuition and subsidize child care for classroom assistants and other lower-level school-system employees who want to become teachers; this effort is focused on training minorities, who are underrepresented among Omaha's educators.

Sherwood also decided to redouble its focus on early-childhood education. Years ago, when Susie indicated to Superintendent Mackiel that she wanted to pour most of her foundation giving into Omaha's schools, he responded, "Don't give it to me," and suggested that she could maximize her return on investment by focusing on the kids who weren't yet old enough for the public-school system.

In 2001, she began supporting Educare, an experimental, all-day and all-year program for at-risk infants, toddlers, and preschoolers. The initiative had been launched in Chicago by the Ounce of Prevention Fund, and Susie thought it was a great idea to help children who would otherwise, in her view, be languishing in day care. "These kids," she says, "they're in someone's basement with Jerry Springer on TV and someone checks on them every half-hour to see they're not dead. Then they go off to kindergarten."

Supported by a mix of federal, state, and foundation money to the tune of more than $15,000 per student, Educare now has a staff of 110 working with 366 pre-K students in Omaha. Her father's gift has enabled Susie's foundation to become the largest private-sector funder of Educare. (She also backs its five other centers around the country.) And the program seems to be working: According to researchers at the University of North Carolina, children who have spent at least three years in Educare score, on average, 8.7% higher than the national mean on school-readiness tests.

There's one other fact about Susie's giving that shows the power of the Buffett name and reminds us, perhaps, why her father is renowned as a master investment strategist. The $20 million a year that Susie is donating to Educare has had a multiplier effect, attracting millions more from new donors, including the George Kaiser Family Foundation and the W.K. Kellogg Foundation. That is a compounding effect that Dad would be proud of.

Jeff Bailey is a former reporter for The New York Times and The Wall Street Journal.

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5Comments

Whether it is $1 billion or $1,000, I think this is a great example for each of us as we think about our own contribution to charity. Our individual contributions will be much more profound to give 10% of our wealth or personal time to one cause rather than .05% to 20 causes. This was a great article for me to self reflect on my own habits and ultimatley the impact that I can make.

I hope all charity givers will learn this valuable lesson on making your donation as valuable as it possibley can. The most valued gift is the proper education of creating a strong family, two parents, each with a divine role to play in the upbringing of children.

"The Lord works from the inside out. The world works from the outside in. The world would take people out of the slums. Christ would take the slums out of people, and then they would take themselves out of the slums. The world would mold men by changing their environment. Christ changes men, who then change their environment. The world would shape human behavior, but Christ can change human nature." — Ezra Taft Benson

Throwing money at symptons won't solve problems, you have to get to the crux of the matter. Failing families beget extinct cultures. Without reversing this societies will become extinct and cultures will be lost. Lend support and teach lessons where there is hope for creating a strong family first and foremost. The Buffetts seem like a strong family and a good model for others to emulate. I hope they learn to give where it will do the most good and that is in strenghtening family relationships.

Bravo... Warren and his wife obviously taught their children well... it is important that they learn early the value of money as well as the responsibilities that come with it. Bravo... the legacy of giving is one that needs to be emulated.